1、CLAW5001 Legal Environment of Business,Threshold Legal Concepts II: Legal Liability,Patty Kamvounias,2,Overview of Todays Lecture,Threshold legal concepts II: liability (who can sue and be sued) Individual and corporate liability Primary and secondary liability Vicarious liability Criminal liability

2、 Public and private enforcement of the law Preview of next weeks lecture: overview of the law of contract: making the contract,2,Discussion Questions,What are the advantages of having a company carry on a business? How can a person or a company be liable if the person or company has not directly con

3、travened a provision in a statute? In what circumstances may a person be liable to third parties for the conduct of another person? Why might some legislation rely on both public and private enforcement? How might the criminal law impact on business conduct? Consider the effectiveness of the differe

4、nt remedies and orders available in civil and in criminal actions.,3,Liability of individuals and corporations,5,Review from week 1: extent of the corporations power ?,section 51 Legislative powers of the Parliament The Parliament shall . have power to make laws. with respect to: (xx) foreign corpor

5、ations, and trading or financial corporations formed within the limits of the Commonwealth;,Issues: Can Commonwealth legislation based on the power in section 51(xx) deal with the incorporation of companies? NO So how can the Commonwealth government make it easier for businesses to operate nationall

6、y? See: section 122 (territories power) + section 51(xxxvii) (referral of power by the States to the Commonwealth): the constitutional basis of the Corporations Act 2001 and Australian Securities and Investments Commission Act 2001,company law,Corporations Act 2001 (Cth) + Australian Securities and

7、Investments Commission Act 2001 (Cth) rules applying to the formation, management and operation of companies administered and enforced nationally by ASIC (Australian Securities and Investments Commission) corporations law studied in CLAW6002,what is a company?,An association of individuals set up fo

8、r a common object to carry on a business or other activity How do you establish a company? (the process is called registration now was called incorporation) requirements are set out in Corporations Act When it is registered, a company becomes a distinct legal person that exists separately from its s

9、hareholders/members,Fundamental rule in company law,8,Salomon v Salomon once formed, company remains in existences until its name is removed from the register of companies (deregistration) e.g. following winding up Members can easily transfer their interest in the company (transfer of shares),Advant

10、ages of being a company,Limited liability of members: liability of members is limited to the amount if any which has not been paid on the shares held Debts of the company are NOT debts of its members: major advantage corporate structure for business can set up company to operate business without ris

11、k to the private assets of the owner/controller of the business,fundamental rule in company law: exceptions,Exceptions to limited liability of members: lifting the veil of incorporation The corporate veil can be pierced or lifted and company members may be liable in certain circumstances Examples in

12、clude - directors sign personal guarantees to secure company debts failure of directors to discharge duty to prevent insolvent trading by the company corporate groups (more on this in CLAW6002!),13,Disqualification from managing a company,On application by the ACCC or the DPP, the Court may make an

13、order disqualifying a person from the management of a corporation for a time if it is satisfied that the person has contravened, attempted to contravene or has been involved in a contravention of the law; and the disqualification is justified see s86E Competition and Consumer Act 2010 (for contraven

14、tions of the competition provisions) see s248 Australian Consumer Law (includes unconscionable conduct provisions, some consumer protection and product safety provisions) Similar provisions in Corporations Act (more on this in CLAW6002.),is the law unfair to individuals?,“We have now stepped up into

15、 a very high stakes game. People are starting to worry about their own futures, not just the companys.” (Bruce Lloyd, Clayton Utz) “The regime is designed to bring home the responsibility directly to the executives concerned.” (John Story, Australian Institute of Company Directors) “ by putting the

16、onus on individuals, the legislation would force executives to move beyond the compliance checklist and make sure there was a cultural framework in place to weed out bad practices.” (Mike Lotzof, Compliance Institute of Australia),Primary and secondary liability,primary and secondary liability: defi

17、nitions and examples,Primary liability For engaging in conduct that is prohibited by the law Note: statute may impose liability on individuals or on corporations (corporations are separate legal identity from individuals who own and/or manage the corporation),Secondary/ancillary liability For aiding

18、 or abetting an individual or a corporation to contravene the law; conspiring with others to contravene the law; for being in any way knowingly concerned in the contravention,can the corporation indemnify officers?,No it is a criminal offence for corporations to indemnify officers, employees or agen

19、ts (whether by agreement or by making a payment and whether directly or through an interposed entity) against any of the following liabilities: (a) a liability to pay a pecuniary penalty for a contravention of the law; (b) legal costs incurred in defending or resisting proceedings in which the perso

20、n is found to have such a liability see s77A Competition and Consumer Act 2010 (for contraventions of the competition provisions) see s229 Australian Consumer Law Similar provisions in Corporations Act (more on this in CLAW6002),Primary and secondary liability for penalties under the Competition and

21、 Consumer Act 2010,ACCC v Jurlique International Pty Ltd 2007 FCA 79,$3.2 million penalty for Jurlique companies + separate $200,000 penalty for ancillary involvement of managing director (refer to topic 10 anticompetitive agreements),Primary and secondary liability in relation to false or misleadin

22、g representations about goods or services,20,ACCC v Nissan Motor Company Australia Pty Ltd (1998) ATPR 41-660,.au/used-nissan-patrol.html,Advertiser primarily/directly liable + Advertising agency also liable because aided and abetted the false representation,Student case presentation,Vicarious liabi

23、lity,Liability for the conduct of others,An employer may be vicariously liable to third parties for the actions of employees committed in the course of employment Principle will apply: in relation to torts (civil wrongs - assault, negligence etc ) (refer to topic 8 tort of negligence) whether employ

24、er is an individual or a corporation (companies usually liable for negligence or fraud of employees) Injured person cannot recover from employer if: act was committed by an independent contractor and not an employee act of employee was outside the scope of employment,Liability for the tortious condu

25、ct of others: refer also to topic 8 notes,23,Deatons Pty Ltd v Flew (1949) 79 CLR 370,Student case presentation,Criminal liability,25,What is a crime?,“ a legal wrong that can be followed by criminal proceedings which may result in punishment.” (Professor Glanville Williams, 1978) A legal wrong (con

26、trast other wrongs e.g. moral wrongs, civil wrongs - torts and contract) Criminal proceedings (contrast civil trial proceedings) Punishment (contrast outcome of civil proceedings),26,sources of criminal law?,Common law State Legislation main source of criminal law In Queensland, Tasmania, WA and the

27、 NT Criminal Codes have replaced the previous common law of crime. In NSW, SA, Victoria and the ACT legislation repeats the common law of crime and has created new statutory offences. Federal/Commonwealth Legislation Crimes Act 1914 (Cth) Criminal Code Act 1995 (Cth) other Acts containing criminal p

28、rovisions e.g Corporations Act 2001 (Cth),Criminal law,27,Criminal law,28,Trial by judge + jury of 12,29,Trial by judge + jury of 12 identity of jury protected by law so no photos!,30,.au/technology/technology-news/a-quick-click-or-two-in-court-lands-a-young-woman-in-the-nick-20110928-1kxf4.html SHE

29、 went to court out of curiosity, to see how the Australian legal system works. But within days, the 30-year-old Chinese-Australian had been on bail, had narrowly escaped a conviction for contempt of court and had her fingerprints taken by the police. All she had done was to enter a Downing Centre co

30、urtroom and use her phone to take a picture of the jury, which included her best friends husband. A member of the jury noticed it and sent a note alerting the judge, who charged her with contempt of court.,.au/cats/court_lists.html,31,The criminal trial,commences with

31、 the arraignment, where the accused enters a plea if the accused pleads guilty, the judge hears the facts and imposes a sentence/punishment if the accused pleads not guilty, the matter proceeds to trial and the prosecution and defence present their evidence if the accused is found guilty, the judge

32、imposes a sentence/punishment aim of the sentence? includes retribution, deterrence, incapacitation, rehabilitation etc compensation for the victim?,Criminal law,32,Criminal law,33,Criminal law,34,Criminal law,35,36,General principles,Mens rea can be - intention - recklessness e.g. crime of murder r

33、equires act causing death to be done with reckless indifference to human life or with intent to kill or inflict grievous bodily harm otherwise taken to be crime of manslaughter: Crimes Act 1900 (NSW) s 18,37,General principles,Mens rea can be - negligence e.g. crime of negligent driving: Road Transp

34、ort (Safety and Management) Act 1999 (NSW) s 42(1) note - the degree of negligence needed to satisfy mens rea is much greater than under civil law,38,General principles,Mens rea can be - knowledge e.g. crime of receiving stolen goods requires knowledge that the goods were stolen: Crimes Act 1900 (NS

35、W) s189,39,General principles,An exception to the fundamental rule: crimes of strict liability strict liability offences are committed by the actus reus and there is no need to establish mens rea e.g. traffic offences such as speeding For strict liability offences, a defence of honest and reasonable

36、 mistake may be available: Proudman v Dayman (1941) 67 CLR 536 at 540 Dixon J: an honest and reasonable belief in a state of affairs which, if they existed, would make the defendants act innocent affords an excuse for doing what would otherwise be an offence.,40,General principles,Principal: The per

37、petrator who performs the most significant and direct causal act. Accessory: A person who takes part in the commission of the crime by assisting or encouraging the principal also guilty of the crime e.g. Crimes Act 1900 (NSW) s351B Aiders and abettors punishable as principals (1) Every person who ai

38、ds, abets, counsels or procures the commission of any offence punishable on summary conviction may be proceeded against and convicted together with or before or after the conviction of the principal offender.,41,corporate criminal responsibility,Can a corporation commit a crime? Direct liability and

39、 vicarious liability (see earlier notes) A corporation is a legal person but it has no physical existence; lacking a mind, how can a corporation have the requisite mens rea? A corporation can only act through natural persons (its officers and employees) so you need to be able to determine whether th

40、e corporation or the individual person will be liable for the criminal action how do you do this?,corporate criminal responsibility : organic theory,A company may in many ways be likened to a human being. It has a brain and nerve centre which controls what it does. It also has hands which hold the t

41、ools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of t

42、he company and control what it does. The state of mind of these managers is the state of mind of the company and is treated by the law as such. Lord Denning, H L Bolton (Engineering) Co Ltd v T J Graham or (b) proving that a high managerial agent of the body corporate intentionally, knowingly or rec

43、klessly engaged in the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the commission of the offence; or,45,Corporate criminal responsibility: fault element,Criminal Code Act 1995 (Cth) section 12.3 If intention, knowledge or recklessness must be attributed to a body cor

44、porate that expressly, tacitly or impliedly authorised or permitted the commission of the offence The means by which such an authorisation or permission may be established include: (c) proving that a corporate culture existed within the body corporate that directed, encouraged, tolerated or led to n

45、oncompliance with the relevant provision; or (d) proving that the body corporate failed to create and maintain a corporate culture that required compliance with the relevant provision. s12.3(6) corporate culture defined as “an attitude, policy, rule, course of conduct or practice existing within the

46、 body corporate”,46,White collar crime,Crimes of a commercial nature committed by persons in positions of power or of relatively high status Includes variety of non-violent crimes committed in commercial situations for financial gain Difficult to detect and to prosecute What type of sentencing is ap

47、propriate? See: R v Williams (2005) 216 ALR 113,Criminalisation of cartel conduct,“Those involved in anti-competitive behaviour are just like common crooks they steal from consumers and bully their competitors while wearing flash suits and shiny shoes” Graeme Samuel 25 February 2010 (ACCC news relea

48、se #NR 028/10) ACCC policy: serious cartel conduct should be prosecuted criminally wherever possible - refer to topic 10,in the news,48,.au/blog/wp-content/uploads/2010/08/StuartAriff1.jpg,49,In the news,ASIC successful in civil proceedings against insolvency practitioner brought pursuant to Corpora

49、tions Act 2001 s536 ASIC v Stuart Karim Ariff 2009 NSWSC 829 (18 August 2009) Bergin CJ made orders as follows Banning Ariff as an official and registered liquidator for life Acceptance by him that each of the 83 allegations of misconduct were proved against him Declarations that in relation to each

50、 of 16 companies he had not faithfully performed his duties as liquidator and that he had prejudiced the interests of creditors and members Ordered he pay compensation of $4.9million to the relevant companies His immediate removal from acting as liquidator or administrator of all companies to which

51、he was still appointed,50,Corporations Act 2001,Corporations Act 2001: section 536 (1) Where: (a) it appears that a liquidator has not faithfully performed or is not faithfully performing his or her duties ; or (b) a complaint is made with respect to the conduct of a liquidator in connection with th

52、e performance of his or her duties; the Court or ASIC may inquire into the matter and take such action as it thinks fit. (2) ASIC may report to the Court any matter that in its opinion is a misfeasance, neglect or omission on the part of the liquidator and the Court may order the liquidator to make

53、good any loss that the estate of the company has sustained thereby and may make such other order or orders as it thinks fit. (3) The Court may at any time require a liquidator to answer any inquiry in relation to the winding up and may examine the liquidator or any other person on oath concerning th

54、e winding up and may direct an investigation to be made of the books of the liquidator.,in the news,But thats not all! Stuart Ariff arrested in August 2010 on 19 criminal charges following investigation by ASIC - including six counts under Corporations Act 2001 s1308(2) Matter prosecuted by the Comm

55、onwealth DPP Criminal trial in Downing Centre District Court Sydney: Ariff found Guilty and sentenced to 6 years jail .au/business/news/liquidator-stuart-ariff-jailed-for-fraud/story-e6frg906-1226147311834,51,52,Corporations Act 2001,Corporations Act 2001: section 1308(2) A person who, in a document

56、 required by or for the purposes of this Act or lodged with or submitted to ASIC, makes or authorises the making of a statement that to the persons knowledge is false or misleading in a material particular, or omits or authorises the omission of any matter or thing without which the document is to t

57、he persons knowledge misleading in a material respect, is guilty of an offence. The penalty is set out in Corporations Act 2001 Schedule 3: 200 penalty units or imprisonment for 5 years, or both. What is a penalty unit? Crimes Act 1914 section 4AA states that in a law of the Commonwealth penalty uni

58、t means $110.,Public enforcement of the law,Rod Sims + Wayne Swan + Greg Medcraft (in Canberra in May 2011),54,.au/news/sydney-nsw/economist-robert-sims-nominated-as-accc-chairman-by-gillard-government/story-fn7q4q9f-1226049142423,ASIC,55,.au/asic/asic.nsf Australias corporate, mar

59、kets and financial services regulator an independent Commonwealth Government body set up under and administer the Australian Securities and Investments Commission Act (ASIC Act); work pursuant to the Corporations Act public enforcement of Corporations Act also private enforcement by creditors, shareholders, other persons whose interests are affected More on this in CLAW6002,ACCC,.au an independent statutory authority formed in 1995 to